Valuation 1 Flashcards
What are the 5 methods of valuation
Comparable
Investment
Profits method
Residual
Depreciated Cost Replacement / Contractors
When would you use the profits method of valuation?
To value business / trade related properties where profitability determines value of the property
Why is the contractors method considered to be the method of last resort, and what kind of properties are valued using the contractors method
Not many comparables
Church
Lighthouse
Submarine base
What are the 5 exceptions to a Red Book Valuation?
Agency / Brokerage
Negotiation / litigation
Internal purposes
Expert witness
Statutory functions
What are the main drivers affecting capital value?
Location
Tenant Covenant strength
Condition of property
Specification
Lease terms – specifically, term length (unexpired term – security of income)
What are the changes to the RICS global valuation standards
- More detail on what should be included in terms of engagement when applying exceptions to VPS1-5
- More detailed commentary on sustainability and ESG
- Simplifying and clarifying text overall
When would you use fair value?
Financial reporting purposes
What is in a terms of engagement
Identification of valuer
Identification of Client
Identification of property
Assumptions
Special assumptions
Bases of value
Method of valuation
Purpose of valuation
Complaints Handling
Valuation date
Valuation fee
Currency
What is an assumption
An assumption is made when it is reasonable to assume that something is true on the valuation date without the need for specific investigation or verification
What is a special assumption
A special assumptions made either when an assumption assumes facts that differ from those made on the valuation date, or would not be made by a typical market participant
Example of assumption
Condition of the building
Property has all relevant planning
No contamination and hazardous substances
Title
Services to the building
Environmental matters
Example of special assumption
Property is vacant when let on the valuation date
Property is let on defined terms when vacant on the valuation date
Planning consent has or will be granted
Property has changed in a defined way
Briefly explain the Term and reversion method
Term - passing rent capitalised until reversion
Reversion - MR into perp, deferred X years then PV £1 back to today (higher yield)
What is an equated yield
Yield between passing rent and reversion takin into account growth
What is the equivalent yield?
Average between initial yield and reversionary yield
